Should You Refinance Your Auto Loan?

Posted on June 21, 2021

a man happy riding in his carIs now the time to refinance your car loan?

The decision to refinance your auto loan is easy when you consider a few variables: your current rate, your credit score, and your current loan terms. Generally speaking, if you qualify for a lower rate, you can save money on your monthly payment and on the total interest paid over the life of your loan.

Let's explore:

  • A lower rate is available — Auto loan rates fluctuate, and if rates have dropped since you first purchased your vehicle, you could refinance at a lower rate. This may save you a significant amount of money over the life of your loan, lower your payment, or decrease the term so you can pay your loan off quicker.

    For example, let's say you owe $20,000 on a 48-month term with a current auto loan rate of 4.5% and a monthly payment of $456. If rates have dropped and you're offered a refinance rate of 3% with the same terms, your monthly payment would reduce to $443. That's a savings of $643 over the course of the loan.

    If your initial loan is dealer-financed, those rates tend to be higher than what you will find at credit unions. It's worth looking into refinancing if this is how you financed your vehicle.

  • Your credit score has improvedThe better your credit score, the more favorable the loan rates you receive will be. If you've been making your payments on time and keeping your credit utilization low, your score has likely improved. If your credit score has improved, you will probably qualify for a lower interest rate.

  • Existing loan termsFirst, you want to be sure your existing loan does not have any early repayment penalties, which would cut into the savings you can expect from refinancing. When you refinance, you can look at paying off your loan quicker, or conversely, if your budget has become tight, you can extend the terms to pay it off slower. This could give you breathing room with a lower monthly payment, but it does mean you pay more for the vehicle in the long run.


There are situations when a refinance doesn't make sense.

  • You're close to the end of your loan term — Interest gradually decreases over the course of a loan. Refinancing near the end of your loan term will not produce significant savings like a loan refinanced at an early stage would.

  • Is your vehicle high mileage? Vehicles depreciate in value over time. As mileage accumulates, an older and/or higher mileage vehicle may not meet loan requirements or may not qualify for the best rates.

  • You're upside-down — Lenders typically avoid loans for an amount higher than a vehicle's value. If you've got negative equity on your car or truck, you're better off working towards paying off that negative equity.

  • Prepayment penalty — Some lenders charge fees to repay a loan early. You can find this information by looking at your original loan documents. Any penalties would need to be paid after you complete your refinance – but do the math. If the money you can save is significantly greater than the penalty, a refinance may still be a good idea.

After reviewing current rates, your credit report, and your loan terms, does a refinance make sense right now? If your answer is yes, get refinanced today! Receive an instant decision on your refinance and lower your term and/or monthly payment in minutes right here at

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